The Housing Bubble

The Auburn Journal reports from California. “There you are, living in the house of your dreams. It cost you $500,000, but you’re only paying $1,100 a month after you 100-percent financed your home with an interest-only pay-option adjustable rate mortgage, known as an ARM. Then the market changes.”

“Your completely financed home, after the market has cooled, is now going to cost you almost $4,000 a month for your mortgage. Welcome to the world of some of Placer County’s residents.”

“According to DataQuicks’ latest report, default notices have risen 262.4 percent in the fourth quarter of 2006 in the county, exploding from 149 notices in the fourth quarter of 2005 to 540 in 2006.”

“To combine with the default notices, median home prices in the region continued a downward trend according to the Placer County Association of Realtors. The median home price for the county in December 2006 was $439,700. The median sales dropped 9.3 percent from 2005 when the median price was $485,000.”

“‘I see a decline for Placer County. One of the things lenders are doing, because Placer County was one of the fastest-growing markets appreciation wise, is they put a review on the appraisals,’ said (broker) Mark Champlin in Auburn. ‘Almost every lender is putting a second review on the appraisals because Placer County went up so fast and it’s subject to change fast.’”

“‘Mortgage defaults have definitely increased. I used to look at the paper and see one every once in a while, now I look and I see three or four,’ said Kathy King, a mortgage broker in Auburn. ‘It’s kind of scary because Auburn hasn’t historically been a big area for foreclosures.’”

“The reason for the increase is because interest rates were low for a long period of time and consumers were getting loans that normally would be out of their reach, King said. Consumers who got 100 percent financing on negative amortization loans and other adjustable-rate mortgages are starting to feel some discomfort, and more could be on the way.”

“So what to do for those whose monthly mortgage payments have gone up? ‘Anybody who bought a home in the last two years cannot refinance, they have to ride that storm out,’ said Champlin, a licensed real estate and mortgage broker since 1979. ‘I can’t refinance anybody, I get calls all the time. They are coming out of a 4.75 (interest rate), it had a three-year window on it, and the reality is they’re looking at a 6.5 (rate).’”

The Times Herald. “Foreclosure ‘is a scary, nasty process,’ said Joe Nemec of Benicia’s SkyValley Financial, Inc. And he should know because it happened to him in 1999.”

“Medical problems and job loss used to be the main reasons people lost their homes to foreclosure, Nemec and other local financial and real estate experts say. But a growing number of homeowners are finding it’s not their health but their mortgage type that’s costing them their homes.”

“Some experts blame the same ‘creative financing’ or ‘predatory loans,’ that got many relatively recent home buyers into their first homes, for a spike in the number of home foreclosures statewide.”

“And in few places is the problem worse than in Solano County, which ranked second only to Stanislaus County for foreclosures in October among California’s 58 counties, according to RealtyTrac.”

“And about 500 more mortgage default notices went out to Solano County mailboxes recently, signaling the highest rate of foreclosure activity in eight years, a service reported. Defaults rose by 484, or 163 percent, in Solano County, the report showed.”

“‘Sometimes when they come in, many of them are OK, but some are really angry, and blaming the lender,’ said SkyValley Financial president Mitchell Chernock. Chernock said he expects to see more angry people in coming months as more homeowners with ‘creative’ mortgage loans, find themselves in trouble.”

“Sinking real estate values also have driven up foreclosures. ‘Some of these adjustable loans have gotten some people in over their heads, and with the real estate slowdown, the equity isn’t what they’d planned on,’ said said Jeff Dennis, president of the Solano Association of Realtors. ‘It becomes an issue of continuing to throw money away on a lost cause.’”

“One man who said he has shopped for foreclosed homes around the Bay Area for more than 20 years, called the recent housing market ’shocking.’ He said he ‘hasn’t bought anything in months’ because most properties sold at auction are too deeply leveraged to be worth buying.”

“Attending the same recent foreclosure auction, Realtor David Barker said he’s also noticed that most homes being foreclosed on are recent purchases. ‘They probably had 100 percent financing and have now come to grief,’ Barker said. ‘There’s no equity.’”

Inside Bay Area. “The ‘For Sale’ sign on the house next door has been up three months. Home sales have clearly declined and home price appreciation has slowed. Should Bay Area homeowners be worried? Experts say no.”

“‘If the economy holds up and we keep creating new jobs, then we should weather this (slowdown) fine,’ said Delores Conway, director of the Casden Real Estate Economics Forecast at the Lusk Center.”

“‘People like me and my friends, whose property figures into their retirement plans and net worth, don’t care if there is seven months of inventory on the real estate market,’ said Berkeley homeowner Robert Marsh. ‘Even if it goes down for several years, it will go up in the long term,’ Marsh said.”

“The losers are homeowners who are forced to sell and folks who can’t afford their mortgage payments. The latter group is in the worst position. When the market was red hot, a number of people bought homes with ‘creative’ mortgages, which made it possible to buy with no down payment or pay extremely low interest for a couple of years, among other options.”

“The expectation was that prices would continue to rise and the homeowners could sell the homes and make a profit. But then the market slowed, the payments went up and these individuals can’t afford their mortgage payments, said Geoffrey Craighead, president of the San Mateo County Association of Realtors. ‘That’s why we’re seeing so many foreclosures now.’”

“If you’re in this position, get rid of your house right now, economist Christopher Thornberg advises. ‘Get it on the market now, before prices soften even more,’ he said.”

“Renter Rachel Luxemburg of San Mateo said the slowdown hasn’t tempted her to buy. ‘When you can find something on the Peninsula that isn’t a crack house for under $500,000, then I’ll consider buying. But not now,’ Luxemburg said. ‘An approximately five percent drop off the top of the market is no great deal, especially in the already-overpriced Bay Area.’”

A report from the Arizona Republic. “Downtown Tempe is in flux. Construction has torn up streets. Building plans are coming in every month. High-rises are popping up where once there was nothing. Construction projects are continually coming in. City estimates project an estimated 5,000 home units, bringing about 10,000 residents to Tempe’s downtown area within the next five years.”

“‘Though it’s really hard to tell how many people it will ultimately be until they start getting occupied and we can see if it’s going to be single people, couples, people with a couple of kids, or ASU students with a roommate or two,’ said Kris Baxter, who works in Tempe’s Economic Development Department.”

“Jonathan Dalton, a Valley real estate agent, said there might be too many in the works.”

“‘There is a glut in townhouses,’ Dalton said. ‘But all these (Tempe) projects were put together when the market was still moving and the momentum is such that you can’t cancel them. I see an oversupply in a lot of the upscale townhouses and condos near the Tempe-Scottsdale border.’”

“A new report shows Valley renters will pay 5.4 percent more this year, to $785 a month. That monthly rent is just about equal to the average weekly paycheck of $794 in Maricopa County.”

“But renting is looking more attractive to people priced out of the housing market. The latest forecast shows one paycheck will cover the rent; you would need at least two paychecks to cover the median monthly mortgage payment of $1,300.”

The East Valley Tribune from Arizona. “Sagging home prices sent foreclosures climbing throughout the Valley in 2006. Some 3,388 East Valley properties entered the foreclosure process in 2006, up 13.8 percent from the year before, a report shows.”

“In the Valley, many of the foreclosures are likely involving investors who hoped to cash in on the boom but bought too late, said Jay Butler, director of Realty Studies at Arizona State University. Even experienced investors got caught because the market turned so quickly, Butler said.”

“John Burpee, owner of Mesa-based Foreclosure Help Group LLC, said he receives 10 calls a day from investors and homeowners in danger of foreclosure. About 30 percent of those are from people who haven’t yet received their notice of trustee’s sale, a document that starts the 90-day foreclosure process, he said.”

“‘There’s going to have to be an adjustment for that exuberance we just went through,’ said Tom Ruff, a partner at real estate data company Information Market.”

The Palm Beach Post reports on Las Vegas. “Before high-rolling Las Vegas lender USA Capital came up $962 million short, it bankrolled grand plans for 719 Executive Center Drive in West Palm Beach. Ultra-high, ultra-chic condo towers would replace the shabby but affordable apartments that had been there for decades.”

“Today, the scrap of land is a patch of empty. The abandoned apartments have been picked clean of stoves and refrigerators. Blinds flap in open windows.”

“‘It is an unbelievably bad, bad situation,’ said Aventura’s Dennis Flier, a member of the bankruptcy court’s committee representing USA investors. In an Internet chat room reserved solely for USA investors, horror stories abound, he said.”

“Even wary investors were sold. ‘I actually took a trip to Las Vegas to their home office because I don’t buy anything sight unseen,’ said a Miami investor who asked that his name not be used. ‘I did not do it haphazardly.’”

“USA said it built security into its loans. For instance, investments would top out at 60 percent of the property’s value. That way, even if the project collapsed, a sale of the property would ensure people got their money back.”

“But USA’s 60 percent solution was a shot in the dark. According to a 2-year-old Securities and Exchange Commission letter to USA, ‘More than half of the loan portfolio was not supported with independent appraisals.’”

“The revelation was alarming. If USA had no solid idea of how much properties were worth, investors could have no solid idea of how much risk they were assuming. There is speculation that at least some investors will get back 75 cents on the dollar, a decent return for assets in a bankruptcy proceeding. But Boynton investor John Ulrich calls that ‘wishful thinking.’”

The Review Journal from Las Vegas. “Mayor Oscar Goodman long has pushed and prodded downtown developers to hurry up with their plans for high-rise condominiums. Now he’s taking out the whip.”

“‘I’m very concerned that the city was being played for a fool by developers coming to us, asking for entitlements … with no expectation of building those plans,’ Goodman said.”

“But the two developers complained that the Las Vegas high-rise market has gone soft, with investors scared off by high labor costs and construction material shortages.”

“‘I can only tell you the development climate all over the valley is not good right now. Construction prices are driving property values down. Investors are scared to come here,’ Leanord Mussina, spokesman for Club Renaissance, told the City Council.”

“Club Renaissance is a 60-story, 950-unit project at Casino Center Boulevard and Bonneville Avenue. Like dozens of other projects, the lot has sat vacant and untouched while only a handful of projects are under construction. Only one, SoHo Lofts, is completed.”

“‘We’re just a victim of construction costs. Financing has dried up to a large extent for Las Vegas. We’re redesigning, trying to value engineer, to do something affordable,’ Mussina said.”

What do you see in your housing market this weekend? A letter to the editor? “In her recent front-page article ‘A popular place for house seekers’ (Feb. 1 Advocate), Jennifer Mann really missed the mark relative to reporting on recent trends in the housing market.”

“Of the 32 homes that priced between $400,000-$500,000, just 25 percent sold at or above their asking price while 75 percent sold for an average $16,000 below their asking price. Of the nine homes, priced between $500,000-$600,000, only one sold at or above its asking price with the remaining homes selling for an average $15,000 less. Of the eight homes, priced between $600,000-$700,000, only one sold at or above its asking price with the remaining homes selling for an average $24,000 less.”

“This rough analysis took me all of 30 minutes. The Advocate staff might take a similar approach the next time they make a contention about the housing market that begs to be supported by current data rather than outdated sales figures and anecdotal comments from real estate agents.”

A new pricing strategy? “Frank Lanham, a real estate agent (in) Fells Point, said he had expected the market to pick up even more last month. ‘I see the market is still sluggish. I’ve seen some agents that have not had settlements for four months now,’ Lanham said.”

“In the past six months or so, Lanham said, agents have started to use the term ‘drama priced,’ signaling price cuts of at least $30,000, and have even splashed that term on for-sale signs. Incentives also are still common, Lanham said.”

Signs of oversupply? “The growing condo glut in New Orleans has experts predicting prices will fall and developers will have to target a less-affluent market. ‘There are a lot of units on the market. You’re going to see asking prices start to come down more,’ said Shaun Talbot, vice president of Talbot Realty Group.”

“Half-empty streets and rows of for-sale signs are common at some of the multi-million-dollar estates in outer Sydney as developers turn to lavish gifts and no-deposit finance to attract buyers. ‘I’m not surprised that some estates are struggling,’ said Simon Tennent, executive director of housing and economics for the Housing Industry Association. ‘These are great quality homes on excellent estates, but do the simple maths and you can’t afford them.’”

Or falling prices? “According to real estate sector experts, high prices in some localities, along with strict bank credit norms and investors’ penchant for buying properties in cities like Pune, Naik and Thane has led to declining demand for mid-segment flats by as much as 25 per cent to 30 per cent in the last two to three months.”

“‘Prices are stagnated and affordability of prospective buyers is coming down. Moreover, even if they have money, people are not buying properties thinking that the prices will come down,’ says Sanjay Chaturvedi, executive editor (of) an industry magazine.”

MyFox Tampa Bay reports from Florida. “In the 18 years Roz Fenton’s worked at the Pasco Clerk of Courts Office, she’s never seen this. ‘At least 60 foreclosure sales a week,’ she said. The files and files just seem to keep growing. ‘We’ve had more overtime in the office. We’ve had to pull in additional sources to help with the overload in the area,’ she explained.”

“‘You had a lot of investors that speculated and came in and bought properties thinking property values were going to keep escalating,’ said real estate investor Scott Wheeler. ‘Adjustable rates adjust, and they are consistently adjusting up at this point in time, and those homeowners would never have been qualified under the existing rates,’ he said.”

“Back at the Pasco clerk’s office, two weeks worth of foreclosure files are set to be sold at auction on the courthouse steps. ‘We conduct sales twice a week frequently. We’ll have as many as 10 to 15 sales each time,’ said Fenton.”

The Orlando Sentinel. “Consolidation within the home-building business has slowed dramatically, but the pace should pick up again in about a year, and some markets, including Florida, could see a ‘feeding frenzy,’ industry experts said Friday at the International Builders’ Show in Orlando.”

“‘Land is an issue,’ said Gopal Ahluwalia, VP of research for the National Association of Home Builders, as many builders have been canceling options on property or selling off tracts as demand for new homes has slackened.”

“Many large builders are willing to walk away from undeveloped property now because they are betting they will be able to purchase ‘better land at better prices’ a year or so from now, said Michael Kahn, president of a Ponte Vedra Beach brokerage and consulting firm.”

The News Journal. “Trying to determine where home sales will be the hottest this year depends on whom you ask. ‘It’s a little early to tell, but indications are it will be in the West Volusia area,’ said Tim Durkin, president of Mercedes Homes’ Volusia-Flagler division. ‘It’s pretty stagnant over there on the east side.’”

“Greg Antonich, a broker in Daytona Beach, said real estate agents lately have been dealing with ‘real buyers’ of existing homes, or people who plan to live in the homes rather than use them as investments.”

“‘Buyers are buying what they can afford,’ Antonich said. ‘Homes in the $175,000 to $225,000 range are what’s moving, primarily in nice, existing subdivisions in good areas where prices have receded to where they were a few years ago.’”

“‘Flagler is different. What’s moving is existing inventory of new products built before the fall in the market,’ Antonich said. ‘All that has to be absorbed before other things will sell, and then they have to be at attractive pricing.’”

“Builders in Flagler County each have 30 to 40 ’spec’ houses, with no buyers lined up before construction, in the pipeline, he said. ‘Hundreds of spec homes are moving, once incentives are added on,’ he said.”

“Sales at the Plaza Resort and Spa were in condominium-hotels, the units of which are rented like hotel rooms when the owners aren’t using them. As reported in The News-Journal last month, more than 25 area properties with about 3,200 rooms are condo-hotels, and more are planned.”

“The Plaza Resort and Spa, bought by Ocean Waters Development partners Charles Bray and Joseph Gillespie in the late 1990s, was converted into a condo-hotel as the two poured $70 million in renovations into it.”

“The partners own 69 properties so far, with two huge condo-hotels on the drawing board: the 33-story Blu and the 42-story Grand will replace about a half-dozen Ocean Waters properties on the beachside.”

An editorial at the Palm Beach Post. “Gov. Crist is making good on his campaign promises to save the Florida homeowner. Yet, one crucial ingredient of a comprehensive plan to save the state’s real-estate industry still is missing and not being discussed. Foreclosures in Florida are at their highest rates in years.”

“Many homeowners and investors are victims of ‘exotic’ mortgages, which allowed them to purchase properties with little money down.”

“Since it takes much longer to sell a home in a depressed market, and most of these people have lost the equity in their homes due to recent depreciation of values and negative amortizations, many people in foreclosure have no alternative but to go into bankruptcy. High pre-payment penalties make it hard to refinance.”

“In this crisis, the governor and the Legislature need to slow down the foreclosure process, eliminate or limit prepayment penalties and protect the consumer by slowing down the real-estate closing process.”

The Sun Sentinel. “Florida budget writers were handed grim news Friday, with a new report showing state tax collections falling far short of expectations. The report showed that January general revenue collections fell $108 million short of estimates. The plunge in sales tax receipts was especially dramatic, falling almost $71 million.”

“For the past three months, general revenue collections are nearly $160 million below projections. Amy Baker, the coordinator for the Office of Economic and Demographic Research, attributed the drop in sales taxes to a ’spillover effect’ from a slumping housing market.”

“With fewer new homes being built and sold, sales of everything from shingles and sheet metal to washers and dryers are suffering, she said. ‘[That] is having some feedback into sales taxes,’ Baker said.”

The Tampa Tribune. “Seventy-eight days. That’s the average length of time Hillsborough County real estate agents report it’s taking to sell their clients’ homes. That may not be accurate, however.”

“A flaw in the computer system that tracks listing data allowed agents to shield from buyers a clear picture of how long a property has been on the market, according to the Greater Tampa Association of Realtors.”

“‘Some agents were somewhat deceptive and massaged the numbers so it would look like they sold the property in two days,’ said Brad Monroe who sits on the board of the Mid-Florida Regional MLS. ‘This is false advertising.’”

“Consider the recent listing of this home in the Cheval neighborhood: The home originally was on the market for 161 days priced at $899,950. The listing was withdrawn, and then the home relisted for $799,950. It sold 34 days later for $793,500.”

“The MLS showed 34 days as the total number of days on the market, instead of the accurate 195 days. This kind of relisting skews the data two ways, said Tom Scaglione, president of the regional MLS. First, an inaccurate figure for days on the market was recorded. Plus, the data shows the home sold at 99 percent of the list price, when it actually sold for 88 percent of the starting list price.”

“Brenda Wade, an agent in Brandon, said she understands why agents want their listings to look new and has re-entered listings in the MLS herself in the past. Wade said she would wait until a listing expired and enter it back into the system, resetting the ‘days on market’ field, instead of extending the listing.”

“‘It can be to the advantage of your seller,’ Wade said. ‘But it’s not good for statistical purposes.’”

“The Mid-Florida Regional MLS, changed the system in December to add a new field including the ‘cumulative days on market’ in information sent to buyers and sellers. Now, relisting a home won’t reset this counter. The only way to reset it is to wait at least 60 days before putting the home listing back in the MLS system.”

“In another change, it is now a professional violation for agents and brokers working for the same company to relist a property, unless it’s been off the market for 60 days.”

“With a record number of existing homes on the market for sale, 17,154 in Hillsborough County alone, accurate information is important for buying or selling a home, Scaglione said.”

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